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Nobody knows you when you are down and out



If you wanted to express the full meaning of the present situation in tight lipped, grim fashion, this might be it. The new director of America's national intelligence, Dennis C. Blair, expressed concern about long-term harm to America's reputation. The crisis that began in American markets has already "increased questioning of U.S. stewardship of the global economy"

Since the end of the Second World War the United States has been the guarantor of the world's market economy, which since the fall of the Soviet Union is the only "world economy".
Almost all, if not all, of the world's raw materials are priced in dollars which only the United States can print. This has meant, roughly, that the United States could go into the world's "supermarket" and pay with IOUs, redeemable with... more IOUs.

It is impossible to exaggerate the benefits that most Americans have derived from the US being able to write the rules of the game in its own behalf. At his moment, the "too big to fail" and "the only game in town" factors are literally the only things that are keeping a hollowed out American economy still on its feet.

Here is how it works: Luo Ping, a director-general at the China Banking Regulatory Commission, said that China would continue to buy Treasuries in spite of its misgivings about US finances: "We hate you guys. Once you start issuing $1 trillion-$2 trillion . . .we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do. Except for US Treasuries, what can you hold?" he asked. "Gold? You don't hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option." So we see that the ultimate repository of value, "the only option", the US dollar, that is a "fiat currency", meaning that there is nothing behind it except the reputation of the issuer, is increasingly being viewed as "funny money". This is the slipperiest of all possible slippery slopes.

This has only worked till now because the world has believed (imagined?) that the USA was a "serious" country. That has all changed in only a few months. Now the United States, to use the words of a great American, has "screwed up"... big time.
The American financial system, the core of the world financial system, has proved to be an enormous, fraudulent pyramid. Bernard L. Madoff's face, not George Washington's, should be on the dollar bill.

This will be the most important, long term effect of this crisis on the lives of Americans and it will be for generations to come, to the same extent that America's financial centrality has splendidly benefited preceding generations.


The bottom line might be:
"Ye are the salt of the earth: but if the salt hath lost his savour, wherewith shall it be salted? it is thenceforth good for nothing, but to be cast out, and to be trodden under foot of men." Matthew 5:13
You can bet that at this very moment some of the finest financial minds in the world are trying to figure out how to escape from the grip of the toxic dollar without bringing the entire shebang down on their heads.

When they hit upon a solution, this will mean that Americans will have to find something else than dollars to pay their debts with, just as today the Argentinians have to change their shaky pesos into dollars to pay their debts: which is something that has impoverished what was once one of the world's most prosperous nations and made their legendary standard of living a haunting memory.


In short, what was not long ago America's most powerful instrument, its currency's universal value, is now its greatest vulnerability and a string that its rivals will use to pull and jerk it around with at will.

Americans are a very proud people. I cannot predict how they may react to this sudden loss of wealth, standard of living, self-respect and reputation, but I doubt if it will be pleasant.

24 Comments

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As always - we're doomed.

Nice picture of you doing research.

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LOL on that last line, Putty.

David... NEXT time, don't pick a bearded, balding guy! ;-)

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I knew I was going to get this when I put up the picture. Actually I look like a cross between late Fred Astaire and late Cary Grant or George (not Rosemary) Clooney after a bad night

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David. You've got to go over to wwstaebler's "Dark & stormy night" post. There's some serious competition over there, but I think we're both in with a chance. Cheers. ;-)

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I thought that was a pic of Santa Claus' brother. I understand HE was an embarrassment to the family, too! ;O)

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=D

Five.

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I have been looking for you. They replayed a great two or three hour homage to Studs today on CSPAN. It was superb. Just wonderful. Old friends. And younger friends. lines like:

When Studs listens, everybody talks.

This country has not bothered to shoot at a white man since 1945; and we have been at war continually during that period.

This is one of the greatest more insightful points I have ever found in a popular book.

This is the greatest honor I have ever received since I was black listed.

Jimmy Breslin was there. God I should have taken notes.

WHERE ARE THE STUDS TURKELS OF TODAY?

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Boy, dd, you ask a pretty big question there.

I don't think there is anybody around today who could quite replace Studs. He had such a remarkable curiosity about others combined with the heart of a socialist. The closer you were to the workaday world, the more of a "celebrity" you were to Studs.

I find it interesting that the only person (writer) I ever found remotely similar to Studs was Mike Royko, who lived in the same neighborhood as Studs. Maybe there's something in the water?

I'm sorry I missed the special. I'm sure it was great, as it is difficult to imagine anyone who could say anything bad about the guy. He was just that loveable, you know?

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We allowed pretty much everything to become about money, David. But the money ate so much. Eroded so much. It's true elsewhere as well, but the difference is - this was the Citadel. And we turned it into Money Central, over here in North America.

And yes, now we'll see. It likely won't be pleasant. But people, and cultures, have surprising, often unseen, reserves. It's just that the Media, more fevered about money than almost anyone, wasn't going to put a camera on these other things. But they'll step forward now.

And we get to see how strong they are, eh? Same as Spain, Britain, Iceland, Japan, China, Ukraine. All you can say is... we'll see.

I wish we'd chosen to make this change an easier way though.

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And nice to see Martin Jacques in the New Statesman. Thanks for that link.

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This trillion dollar porkulus bill, along with no telling what kind of budget the dems will come up with, may just be the finger that collapses this house of cards which is our monetary system.

$100 a loaf bread is goona seem like the good ol days in the ensuing years.

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Your title alone answers a lot of personal questions for me

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The story of your life?

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absolutely

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Cheer up, you've got a lot of fans at TPM. :^)

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Correct. But it is the last few years that has made us seem un-serious. There is intent to change that.

Money is always imaginary, in that it stands for something else. Even if it stands for a commodity, if it can't be eaten it's again at a remove. Our money is good for the same reasons that people want to live here.

It was not the US government that over-leveraged the financial world. It allowed it, but so did others.

George Soros has useful things to say about this, especially his explanation of a different mortgage system in Denmark:

http://www.huffingtonpost.com/george-soros/a-plan-for-economic-recov_b_166518.html

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Interesting link to Soros... I wish I trusted him, but I most certainly don't. I have a problem with messiahs.

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He does seem to make money, and has been fairly active with the Open Society stuff. I'd take his advice over mine or yours.

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"Money is always imaginary, in that it stands for something else."

Words are always imaginary too, by that standard. But we still speak of truth and lie.

Money is the medium of exchange in economic trade. The medium is not the message, but many have taken Marshall McLuhan to mean the opposite (he did say "the medium is the message" but that has to be understood in context). They have in effect monetized money, put a value on money itself. Instead of loving end goods, they end up loving money, and that's "the root of all evil". Similarly some religions caution against loving the symbol over the idea.

It's not that money is imaginary so much as it has real and imaginary components, it's complex. We can say that currency is symbolic, the question is - what is it that is symbolized by a greenback?

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Nicely put.

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And thanks to you, Tom, for the link to the Soros article. I am intrigued at the Danish solution re mortgage business. Didn't follow the rest of the article that closely.

I've been reading his 2008 book The New Paradigm For Financial Markets. It's hardly a great book (kinda mediocre for the most part) but it seems he sees a chance to update it with a new "edition". His preface review of the situation resonated but I find his "philosophy" a bit self-absorbed and problematic. I started a blog over a week ago but haven't published it yet.

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I think Americans should study Argentina more closely than they have. Its history shows how the rich and prosperous can be turned into clowns in a couple of generations.

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I know only what Naomi Klein wrote about Argentina in her book about disaster capitalism. She mentions Peron, Chicago Boys Friedmanites, violence, and the Falkland Islands (which also turned the tide for Britain at the time).

What is your broad outline of the parallel you see there?

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Rec'd for the photo, alone! Kinda' reminds me of my financial planner - and that was BEFORE he fell on hard times in the latest recession.

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David Seaton

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